Fair and responsible remuneration

Datatec’s strategy remains to improve shareholder returns over the medium term through a combination of corporate and business actions aimed at enhancing the competitiveness and profitability of our subsidiaries and operating divisions. The Group’s remuneration policy seeks to align remuneration to the achievement of the Group’s strategic objectives.

The context in which the Remuneration Committee has set STI and LTI targets for FY22 flows from the strategic imperatives of the Group.

In recognition that the Group has moved into a strategic value creation and realisation phase of its development the Remuneration Committee decided to replace the ROIC measure used previously in the CSP with absolute TSR in FY21, making up two-thirds of the weighting. The Remuneration Committee believes the use of absolute TSR will align remuneration with value creation for shareholders and has continued to apply the same principle for FY22.

In line with Datatec’s decentralised business model, which empowers its divisional management teams to make operational decisions that are best suited to their individual operating needs but within a strategic operating and financial framework set by the Group, divisional incentives are in place to incentivise management to generate value in divisional entities. Separate metrics are in place for Logicalis and Westcon International.

Remuneration targets are aligned with value creation and key stakeholder outcomes such as value generation, improved shareholder returns, cash management/working capital targets and enhanced environmental, social and corporate governance (“ESG”). With effect FY23, the DBP will be replaced with a new share-based payment scheme that we believe will more closely align participants’ interests with those of shareholders and the strategic direction of Datatec.

Note – the market conditions prevailing during the early stages of the Covid-19 pandemic in the early months of FY21 meant that it was extremely difficult to prepare an accurate FY21 budget at the time that the Remuneration Committee set the STI targets, so instead the committee used a target and range for uEPS and EBITDA based on the prior year draft result, which was considered a challenging target in the prevailing circumstances.

Remuneration outcomes

• Executives received no increases to guaranteed pay for FY21 due to Covid-19 uncertainty;
• Likewise, non-executive directors’ fees were not increased;
• STIs earned for FY21 increased compared to FY20 as a result of performance above expectations;
• Only 50% of the CSP awards granted in May 2018 with a performance period that ended 31 March 2021 have vested, because the uEPS performance condition for FY21 was achieved in full. The ROIC performance condition for the other 50% was not met.

Objectives of our remuneration policy

• Set remuneration levels to attract and retain the best local and international talent who will enhance business performance;
• Recognise and reward superior performance when it occurs;
• Direct employees’ energies and activities towards key business goals and strategic outcomes;
• Align employees’ and shareholders’ interests.

Key principles of our remuneration policy

• Reward all employees suitably for their contribution to the Group’s operating and financial performance;
• Apply fair and responsible pay principles to all employees across the Group;
• Promote a common interest with shareholders;
• Consider the international ICT industry, market and country benchmarks to ensure the Group’s remuneration is competitive in regions in which the Group operates, particularly the US, Brazil and the UK;
• Make a significant proportion of the remuneration of executive directors and senior managers performance-based;
• Balance the performance-based element of remuneration between the achievement of short-term and long-term objectives.

These principles are enshrined in the three main elements of remuneration:

ELEMENT OF REMUNERATION				DESCRIPTION AND POLICY				ELIGIBILITY
					Base salary and benefits including retirement and medical scheme contributions				All employees
					Annual bonus plan with performance targets. A proportion is subject to deferral into the DBP (up to FY21 STI) and its successor the DBW (from FY22 STI). Refer to Remuneration report in the Annual Report for more information.				Group executives participate in an annual STI Management of divisions participate in STI plans similar to the Group executives but based on divisional performance targets and personal performance targets Non-management employees typically receive lower levels of STIs based more on personal targets rather than on corporate goals
					CSP – a performance share plan with performance conditions DBP – a portion of the bonus is deferred and the Company contributes a co-investment. Both of these components are in the form of shares which are forfeitable. Discontinued in FY22. DBW from FY23 – as per the DBP but the Company co-investment will be in the form of Share Appreciation Rights (“SARs”) A number of cash-settled share-based remuneration plans are operated in divisions. These are explained in further detail on Remuneration report in the Annual Report.				Datatec Group executives and senior management participate in the Datatec CSP Executive directors and two other senior managers participate in the DBP and with effect from FY23, will participate in the DBW as outlined on the following page Senior management of Logicalis, Westcon International and Analysys Mason participate in divisional share schemes

 

The STI is calculated in relation to base salary as follows:

Base salary x on-target STI percentage x [(personal score x personal weighting) + (corporate score x corporate weighting)]

For executive directors and some senior management:

80% corporate
20% personal – with the exception of FY21 where 70% corporate and 30% personal was used as a result of the global Covid-19 pandemic

For other senior management:

50% corporate
50% personal (with exceptions where appropriate as agreed by the Remuneration Committee)

The STI is partly delivered in cash and partly delivered in shares. The portion of the STI that is deferred on a mandatory basis into the DBP depends on the extent to which targets have been met and comprises a minimum and maximum deferral percentage that is operated on a sliding scale.

Shareholder engagement

Over the past few years, the Remuneration Committee has undertaken a programme of shareholder consultation to ensure shareholders’ views on remuneration were properly and accurately addressed by the Remuneration Committee and considered in the Group’s remuneration policy and implementation practices. This consultation process is ongoing.

Proposed changes to remuneration policy

No changes to our remuneration policy are proposed for FY22. However, we plan to replace the DBP with effect from FY23 with a new share-based payment scheme: it is proposed that the participants’ FY22 STIs (to the extent that the mandatory deferral thresholds are reached) will no longer be deferred into the DBP, instead they will participate in a new deferral mechanism termed the Deferred Bonus Warrant (“DBW”) that we believe will more closely align their interests with those of shareholders and the strategic direction of Datatec.

The participants will continue to defer a portion of their STIs into restricted shares, but the Company’s co-investment component will be awarded as share appreciation rights instead of full value shares. This means the Company’s co-investment component is fully at risk and aligned with shareholder appreciation over the long-term, thereby ensuring a continuous performance under-pin via share price appreciation. In constructing the new DBW, Datatec was mindful that the DBW should not result in any shareholder dilution and as a consequence the DBW will only be capable of being settled with shares purchased on the market at the time of settlement. Overall, we view these as positive changes and believe they address some of the prior issues raised by shareholders in relation to the DBP.

Performance and pay targets for FY22

The corporate financial goals constitute 75% of the total STI for FY22. These targets include underlying earnings per share and EBITDA as well as cash management/working capital targets which the Remuneration Committee introduced in the prior year as particularly critical under the Covid-19 environment.

The personal KPIs agreed by the committee for the executive directors for FY22 are as follows:

• ESG – corporate citizenship and governance evolution;
• Leadership – development of the Group’s operational and organisational strategy for the “new normal” post the pandemic;
• Reduce structural discount – initiatives to achieve value realisation.

The main remuneration targets and outlook are summarised below.

• Executives have received a 5% increase in guaranteed pay for FY22 – the first increase since their base salaries were decreased on 1 March 2019;
• Likewise, non-executive directors’ fees are proposed to increase by 5% (subject to shareholder approval) – the first increase for three years;
• STI – the weighting between corporate and personal performance for FY22 is set at 75%/25% respectively. We introduced a new KPI regarding the reduction of the structural discount currently applying to Datatec. This new KPI makes up 10% of the 25% personal element;
• LTI (DBP) – as a result of our higher STI levels achieved in FY21, the deferral and co-investment by the Company into the DBP was higher compared to previous years. LTI (CSP) awards were made in line with our policy.

Full details of the FY22 bonus structure can be found in the remuneration report in the Annual Report.

 

FY21 bonus outcome

The FY21 STI bonus structure comprised company and individual performance targets.

1) Underlying earnings per share			US cents	Bonus		Target		Outcome
Lower guard-rail		-33%	3.0	40%		25%		40.0%
On target		Target	4.5	100%
Upper guard-rail		33%	6.0	160%
Actual			13.6	160%
2) Adjusted* EBITDA			US$ million	Bonus
Lower guard-rail		-50%	50	40%		25%		37.3%
On target		Target	100	100%
Actual			141	149%
Upper guard-rail		50%	150	160%
3a) Logicalis net overdraft – H1**			US$ million	Bonus
Lower guard-rail		25%	-40	40%		5%		8.0%
On target		Target	-32	100%
Upper guard-rail		-25%	-24	160%
Outcome achieved H1			54	160%
3b) Logicalis net cash – H2**			US$ million	Bonus
Lower guard-rail		25%	23	40%		5%		4.0%
Actual			27	80%
On target		Target	30	100%
Upper guard-rail		-25%	38	160%
4a) Westcon net working capital days – H1**			Days	Bonus
Lower guard-rail		10%	33	40%		5%		8.0%
On target		Target	30	100%
Upper guard-rail		-10%	27	160%
Outcome achieved H1			17	160%
4b) Westcon net working capital days – H2**			Days	Bonus
Lower guard-rail		10%	22	40%		5%		8.0%
On target		Target	20	100%
Outcome achieved H2			18	160%
Upper guard-rail		-10%	18	160%
5) Personal KPIs								CEO		CFO
As evaluated by the Remuneration Committee. See comments below.						30%		32.0%		36.0%
Total on-target bonus						100%		137.3%		141.3%

*	Adjusted means excluding all restructuring costs.
**	Based on budget for the six months.

Because the FY21 bonus for both CEO and CFO is above the on-target bonus, the executive directors are required to defer a mandatory minimum of one-third of their FY21 bonus into the DBP.

The committee assessed achievement against the personal KPI goals as follows:

For the CEO:

• Covid-19 crisis management – covering all aspects of the Group’s response to the pandemic – the Group’s response to the Covid-19 crisis was very well managed and the committee assessed this KPI as overachieved at 17% (target 15%);
• Culture/leadership – qualitative measure assessed by the Remuneration Committee considering how the executive director has led the Group while promoting its values and Code of Conduct. This was assessed to be on-target at 5%;
• Post Covid-19 crisis strategy – development of the Group’s operational and organisational strategy for the “new normal” post the pandemic. The committee assessed that the “new normal” is still unclear and confirmed the metric had been achieved on target at 10% (target 10%).development of the Group’s operational and organisational strategy for the “new normal” post the pandemic. The committee assessed that the “new normal” is still unclear and confirmed the metric had been achieved on target at 10% (target 10%).

For the CFO:

• Covid-19 crisis management – covering all aspects of the Group’s response to the pandemic – the Group’s response to the Covid-19 crisis was very well managed and the committee assessed this KPI as overachieved at 17% (target 15%);
• Westcon International refinancing – the target was to achieve a refinancing on favourable terms. This was successfully completed in August 2020 with the new €275 million (US$320 million) facility for Westcon Europe provided by a banking syndicate, led by CAL&F, and by the two-year US$80 million new receivables securitisation facility for Westcon International’s Asia-Pacific subsidiaries. The new facilities were significantly larger than the previous facilities and refinanced at substantially better terms than the previous facilities, under extremely difficult market conditions. In the Remuneration Committee’s evaluation this KPI had been overachieved at 12% (target 10%);
• External auditor transition – PwC replaced Deloitte as the Group’s external auditor from the FY21 financial year. The Remuneration Committee’s assessment was that the transition from Deloitte to PwC had been highly successful, especially during the period from March to May 2020 in a very difficult environment (as this was immediately after Covid-19 was declared a global pandemic by the WHO) when all parties were required to work remotely. Accordingly, the KPI achievement was agreed to be 6% (target 5%).

Single figure remuneration of executive directors

The following tables show the composition of a single figure of remuneration for the executive directors:

				CEO		CFO
Component				FY21 US$’000	FY20 US$’000	FY21 US$’000	FY20 US$’000
Old LTI			SARS	–	–	–	–
			LTIP	–	2 806	–	617
			DBP	–	–	–	–
New LTI			CSP	1 096	–	344	–
			DBP	1 039	300	225	48
Total LTI				2 135	3 106	569	665
STI			FY18 – cash	–	59	–	15
			FY20 – cash	–	503	–	144
			FY20 – deferred	–	300	–	48
			FY21 – cash	1 700	–	450	–
			FY21 – deferred	1 039	–	225	–
Sub-total STI				2 739	862	675	207
Pension				214	214	84	84
Benefits				55	48	46	47
Base salary				1 140	1 140	503	503
Guaranteed package				1 409	1 402	633	634
				6 283	5 370	1 877	1 506

Old LTI
The final vesting of long-term incentive plans is included in FY20.

DBP and CSP
The value of the shares purchased by the Company equal to the amount of bonus deferred by the Directors in respect of their bonuses for FY21 and FY20 is shown in the table.

The CSP remuneration shown for FY21 arises from the vesting of the June 2018 CSP in June 2021, valued at the 30-day VWAP of Datatec shares as at 28 February 2021.

STI
The STI shown above is split between the element deferred into the DBP and the element paid in cash after publication of the Group results.

A deferred element of the FY18 bonus relating to the SYNNEX transaction earn-out was paid during FY20 and is disclosed separately in the table.

The full Datatec remuneration report can be found in the Annual Report.